Senior officials and allies of the Trump administration are growing increasingly worried. They fear the Justice Department's criminal investigation into Federal Reserve Chair Jerome Powell could create serious problems. These concerns focus on two main areas: potential gridlock in the Senate and instability in financial markets.
Treasury Secretary Sounds the Alarm
Treasury Secretary Scott Bessent reportedly called President Trump on Sunday night. He warned that the probe might cause several significant issues for the administration. According to people familiar with the matter, Bessent specifically highlighted two major risks.
He expressed anxiety about possible negative impacts on financial markets. He also worried about creating hurdles during the Senate confirmation process. This process is for whomever the president selects to be the next Fed chairman. Powell's term as chair ends in May.
Senate Republicans Voice Opposition
Bessent's prediction quickly proved accurate. Late Sunday, after the investigation became public, Senator Thom Tillis made a strong statement. The Republican from North Carolina said he would oppose any Fed nominee put forward by Trump. He stated this opposition would continue "until this legal matter is fully resolved."
Tillis sits on the influential Senate Banking Committee. Given the narrow split in the panel, he could potentially block a nominee from reaching a full floor vote. He could do this by siding with Democrats in opposition. Even if a nominee did make it to the Senate floor, Tillis would only need a handful of other Republicans to join him. Together with Democrats, they could successfully block a confirmation.
Several other Senate Republicans expressed concern on Monday. Senate Majority Leader John Thune of South Dakota said he hoped the dispute would be resolved quickly. Senator John Kennedy of Louisiana, also a banking panel member, offered a blunt assessment.
"The litigation will cause interest rates to go up, not down," Kennedy said. "We need this like we need a hole in the head." He and others worried the fight would rattle markets and raise borrowing costs.
White House Reaction and Internal Dynamics
Some aides within the White House shared concerns about the market's reaction to the probe. Administration officials confirmed this, with one noting the White House was not made aware of the investigation in advance. Stocks did recover after early losses, but a Trump adviser described the immediate fallout as a "huge cluster."
The origins of the probe have also come under scrutiny. In recent weeks, one administration official reportedly lobbied for an investigation. That official was Bill Pulte, head of the Federal Housing Finance Agency. People familiar with the matter said Pulte flew to Palm Beach on Air Force One with Trump on Friday night.
Pulte had previously argued in favor of opening an investigation into Powell. He made these arguments during private conversations with the president and senior administration officials. When asked by Bloomberg TV about reports labeling him an instigator, Pulte distanced himself.
"I don't know anything about it," he stated, adding that the Justice Department and its investigation fall outside his purview. Pulte declined to comment further late Sunday. White House Communications Director Steven Cheung affirmed Pulte's role, calling him an important adviser with the president's full confidence.
The Investigation's Focus and Powell's Response
Washington's U.S. attorney, Jeanine Pirro, is overseeing the investigation. Her office is running the probe, and she defended it publicly. "This office makes decisions based on the merits, nothing more and nothing less," she posted on X Monday night.
The investigation appears to center on the Federal Reserve's building renovation. One person familiar with the matter said the subpoenas seem designed to collect large amounts of information. This information relates to the costs and scope of the Fed's $2.5 billion building renovation. Compiling and reviewing this data could take considerable time.
White House advisers last year suggested Powell might not have provided entirely honest testimony. This was during a congressional hearing in June. At that hearing, Powell challenged press accounts about certain architectural details in the renovation. The subpoenas might aim to uncover inconsistencies in Powell's representations to the Senate Banking Committee.
Powell has been on the Fed's board since 2012. Trump appointed him as Fed chair beginning in 2018. His term as chair concludes in May, but he holds a separate term as a governor. This would allow him to remain on the board until early 2028.
Political Maneuvering and Potential Deals
A senior GOP lawmaker spoke with administration officials on Monday. This lawmaker revealed some Republican lawmakers are considering a proposal. They plan to suggest a deal to the Trump team involving Powell. The deal would be straightforward: Powell leaves his position, and the case against him is dropped.
Trump has publicly criticized Powell on multiple occasions. He attacked the Fed chair for resisting demands to cut interest rates. He also criticized the massive cost of the Federal Reserve renovations. Speaking to NBC News, Trump claimed he knew nothing about the investigation. However, he added Powell is "certainly not very good at the Fed, and he's not very good at building buildings."
Powell spent the weekend consulting with senior advisers. They discussed how to respond to the prospect of an active criminal investigation. Officials had to weigh their options carefully. Should they stay quiet and prepare a legal defense privately? Or should they go public and attempt to reframe the fight on their own terms?
Several of Powell's colleagues on the policy-setting committee were unaware of the subpoenas. They also didn't know about the decision to directly challenge the Trump administration. This was until Powell released his extraordinary video statement on Sunday night.
Powell's Capitol Hill Support
Powell's years of effort in courting lawmakers appeared to yield immediate results. Shortly after his statement, Senator Tillis announced he wouldn't support filling any Fed vacancies. He made this conditional on the legal investigation being resolved first.
Senator Lisa Murkowski of Alaska spoke with Powell on Monday morning. After their conversation, she said she agreed with Tillis's decision. She supported blocking "any Federal Reserve nominees until this is resolved."
Representative French Hill of Arkansas, chairman of the House Financial Services Committee, also sided with Powell. In a statement on Monday, he called the Fed chair "a person of the highest integrity."
Powell and other Fed officials have provided lawmakers and the White House with further details. These details aim to support his initial testimony to Congress. The situation remains fluid, with political, legal, and financial implications continuing to unfold.
